Isn't this plan a illusion and about two years to late? As far as I understood, all private creditors to irish banks have ceased to lend new money since fall 2008. So the exposure of private foreign and domestic creditors is steadily shrinking. So a default of the Irish banks would hit

a) The Irish state

b) The ECB.

I am not sure you are in a strong position with the threat: I will just default and hit myself and my own central bank.

As far as I understood, all private creditors to irish banks have ceased to lend new money since fall 2008. So the exposure of private foreign and domestic creditors is steadily shrinking.

However, just because it's shrinking it doesn't mean the exposure of the private sector is small. In fact, if the British, French and German private sector hadn't been hugely exposed to Irish debt there wouldnt' have been a bailout at all last November.

Ireland bailout: the Datablog guide to who will fund it, which countries are most exposed - and who will be next?

Ireland's bailout negotiations for a bailout are under intense scrutiny. But where's the money coming from - and which countries in the world have the most claims by foreign banks? Get the data Interactive guide

The data is not good enough, not specific enough. Take the exposure of german banks. How much of the sum is

a) To the irish state
b) non bank lenders
c) irish banks
d) depfa

First you have to factor out depfa. A irish bank, yes, but owned by HRE, that is the Federal Republic now. The FRG wonm't default on it's self.

Then you have to subtract b). companies or private, thier creditworthiness will not be deiced by the irish government.

Now a) and c) can still be substantial. But is anybody really demanding a default on all government debt? If Ireland is defaulting o n c) tomorrow, will any foreign private creditors still be involved?

You don't need data - because the point of Jake's letter/article isn't to create a complete recovery plan for the Irish economy, but to put default on the table as a realistic option.

It's a political move, not a practical one. The aim is to persuade the public and the incoming government that default is worth considering, and that it's potentially a better choice than the current ECB/IMF suicide note.

There's no need to deal with specifics until there's a consensus that default is worth considering in the abstract.

At the outset of the crisis the Irish banking system consisted of two parts: International and Irish banks. The "irish" banks did get in trouble and had to be rescued because of the housing bust: Mortgages, breakdown of the construction sector. The international banks had not be rescued with the exception of depfa and here Ireland was for once lucky: depfa was still a german problem.

Now in 2008 there was a high exposure of international banks to Ireland. Some of it was to multinationals based in Ireland: I think we can agree that this exposure is not the problem. Some of it was to the international banks in Ireland: Not the problem either.

Problematic was and is the exposure to the "Irish" banks. But of course all banks have cut back their exposure now for over two years.

The losses of the "Irish banks" did first eat up the capital, so owners did get wiped out. Then the Irish State had to pay. Creditors on the other hand, depositors, bondholders, other creditors escaped scot-free.

Because the losses of the banks were to big, the credit of the Irish state is now in trouble too. Now the question is, why the creditors of the banks don't have to take some losses too. That means the bond-holders but not the depositors or at least not the smaller depositors.

Now my theory is that there are not many private bond-holders left. They have used the last two years to get rid of their credits to Irish banks. The obligations of the Irish banks have shifted to the Irish state and the ECB.

So a default of the troubled Irish banks or the threat of a default is no longer advantageous to Ireland.

Now my theory is that there are not many private bond-holders left. They have used the last two years to get rid of their credits to Irish banks. The obligations of the Irish banks have shifted to the Irish state and the ECB.

Is this consistent with the circus we saw in November, with Germany, France and the ECB pressuring Ireland to accept a bailout of its foreign creditors?

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

You mean pressuring Ireland to accept reality?
High unemployment, ruined "Irish" banks, shrinking economy, a very high budget deficit. All this did exist in Ireland last november. It was not only a figment of the imagination of evil foreigners.

I would be happier with real facts. All we have now is your interpretation of the motives of the ECB and the major european countries.

The fact is all that has been done to the Irish banks is buy their bad assets at inflated prices, as well as guarantee their debt. 100 bn of ECB loans don't change that. The bondholders still have the bulk of the bonds they used to have, since the ECB has only bought about 80bn in sovereign Eurozone bonds so far.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

But isn't there replacement? The Irish banks got 100 billion or from the ECB and quite substantial sums from the Irish government. All this money has to replace some body else's money. And somebody else are the once existing private creditors.

So a default of the banks alone will not achieve much. It has to be default of the irish government.

The Irish banks got 100 billion or from the ECB and quite substantial sums from the Irish government.

That's just liquidity, in exchange for those 100 billion in cash, the Irish banks have to park more than 100 billion in assets, at the ECB's own valuation, as well as pay interest.

That replaces short term lending and deposits, not bonds which are long-term liabilities.

The once existing long-term bondholders continue to be long-term bondholders. Or have traded the bonds with other private bondholders since the ECB is not known to be buying bank bonds (at least, nobody is screaming bloody murder if they're doing it: they just complain about buying government bonds).

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

ECB officials, who say they are politically independent, told Ireland on a Nov. 12 conference call that it should seek outside help to rescue its banks and contain a debt crisis, according to a person briefed on the discussion.

It is simply unconscionable for a central bank to say "look for outside help" regarding its own banks.

ECB President Jean-Claude Trichet said the bank can't afford to set its monetary policy to help individual countries.

Unless that country is Germany, that is. Also, the ECB is saying monetary policy trumps banking supervision.

Asked whether the ECB pushed Ireland into accepting a bailout, he told lawmakers in Brussels today that "we couldn't adjust our policy to take into account the situation of Ireland."

Considering Ireland has 1% of the EU's population...

European Union officials "were leaking in the papers that Sunday, quite incredible pressure on this country," Ahern said today, adding that he won't stand in the next general election for personal reasons.

An ECB spokesman declined to comment on his remarks.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

Consider your source. Ireland is a story of neoliberalism run wild. Your new theory, that everybdody was peachy until the evil ECB intervened, may be popular with eurosceptics and other such ilk. It is hardly supported by the facts.

Dude, it's Reuters saying the Frankfurter Allgemeine and FT-Deutschland published rumours coming from the German government which Reuters determined couldn't be substantiated.

In June, about Spain.

Then Ireland, then Portugal.

Let me remind you that Spain's response to the rumours was to threaten to publish bank stress test data, at which point Germany was livid and did its utmost to water down what was finally publshed a month later. Also, publication of banks' sovereign debt exposure was made voluntary, with Deutsche Bank being the only major bank refusing to disclose any data.

It's all circumstantial but it's pretty damning.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

What new theory? The ECB has failed to intervene in the proper direction, and when it has intervened, it has done so in less than helpful manner. While at the same time Trichet has been undermined by certain national central bankers and chief economists, and people in the EU institutions have been making damaging leaks to the press while proffering to aim for financial stability.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

Well, yes the ECB. Still, the root of the problems of Ireland is in Ireland. Do you deny this?

I don't like this nationalistic narrative evil foreigners picking on innocent little Ireland.

Ireland after all, has been showered with EU-subventions until a few years ago. And it was very big on no regulation and on tax dumping. They still want to keep their corporation tax rate. Is this the fault of some german cabal too?

The reason we're talking about telling foreign creditors to fuck off and die is that domestic Irish creditors are a domestic Irish distributional problem. Foreign creditors are the ones with the motive, means and opportunity to use the European institutions as leverage to get the Irish public to pay for their poor judgement.

Yes, domestic Irish holders of sovereign bonds should also be told to fuck off and die, unless they are important to the Irish economy. But that's an internal Irish question of whether the Irish government wants to impose AusterityTM on the Irish people in order to pay off Irish oligarchs.

I'm not sure if you're trying to argue that the bulk of the Irish sovereign debt is held by ordinary non-oligarchic Irish citizens and businesses (which is almost certainly false) or you simply have been labouring under the impression that I am not in favour of telling Irish oligarchs to fuck off and die (I am very much in favour of that, but that doesn't have anything to do with the European Union or the ECB).

I labour under the impression that you have built a narrative* where the entire debt of the Irish state is hold by "evil" foreign actors, who for some unclear reason deserve to lose their money.

Because of this xenophobic paranoia you have a xenophobic solution: A bank or multinational company who resides - probably because of the low corporation tax - in Ireland is good and should get interest and capital on their bonds. A company or bank that has the misfortune not to have resettled in Ireland and still resides elsewhere should lose everything.

So my mutual regional bank, who has perhaps bought some Irish bonds in the past, is evil and should lose everything. The equivalent Irish mutual bank, who has participated to its heart delight in the property bubble and regularly showered local Fianna Fail politicians with money is good and should take no losses at all.

Meanwhile the Irish elite is laughing all the way to the bank*.

*( or Meistererzählung, but I don't want to fuel your xenophobia)

*

( Not a Irish bank! Only idiotic foreigners would keep their money there! Lichtenstein, Cayman Islands)

Ok, that was to far. Xenophobia goes much to far. But you could tell him to cut it back on the godwin violations.
(Cowen ist not Hitler and Fianna Fail is not the NSDAP)

Still, the analysis - foreigners forced the Irish to do this and that is nationalistic. The idea that all debt I don't like is owned by foreigners anyway is simplistic and a dangerous illusion. The proposed solution is much to oriented on the nation state.

We shouldn't infantilize Ireland and especially the Irish elites. They are responsible and this shouldn't be hidden behind a cloud of anti-EU rhetoric.

Even if, so what? If i see a thief robbing a man, i don't care, because he is not robbing me? It is naive to think that Ireland is some kind of a basket case. Only 2 yrs ago politicians all over wanted to be like irish themselves. Politicians are neoliberal puppets everywhere and in every party.

As per xenophobia: It has been mentioned elsewhere in the thread that not one (correct me if I'm wrong now) of the fiercer participants arguing with you on this in this thread is Irish. Irish xenophobia in this context would be some sort of autophobia, which seems, somehow, unlikely...

Not for the first time in its history the German people have been irresponsibly misled by a political leadership that seems to have lost any sense of history, any sense of order and stability in Europe, and any sense of Germany's key contributing role to the current crisis. As ever, the mindset of lawyers frames the political debate among a political class that seems inhumanly uneducated in matters of economics. If economic voices are heard at all, it is usually the voice of the Bundesbank. It is a peculiar democracy that expects either its constitutional court or central bank to have the final word of wisdom.

I can foresee two outcomes. First, Germany might end up in a procyclical downward spiral of debt reduction and low growth. In that case, the constitutionally prescribed pursuit of a balanced budget would require ever greater budgetary cuts to compensate for a loss of tax revenues.

...

One could also construct a virtuous cycle - the second outcome. If Germany were to return to a pre-crisis level of growth in 2011, and all is well after that, the consolidation phase would then start in a cyclical upturn.

Either of those scenarios, even the positive one, is going to be hugely damaging to the eurozone. In the first case, the German economy would become a structural basket case, and would drag down the rest of Europe for a generation. In the second case, economic and political tensions inside the eurozone are going to become unbearable. ...

...

While the balanced budget law is economically illiterate, it is also universally popular. Average Germans do not primarily regard debt in terms of its economic meaning, but as a moral issue. ...

... The balanced budget constitutional law is therefore not about economics. It is a moral crusade, and it is the last thing, Germany, the eurozone and the world need right now.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

What the hell has this with anything? What exactly has the debt bake or other nonsense to with the question of the neoliberal irish policies. Do the two economist you cite think Ireland is a economic model? I doubt that.

Nationalistic nonsense. I am not responsible for the policy position of the german government. And Ireland brought itself to ruin without any debt brake. So you are suddenly of the opinion that Ireland is able to service its debt, if not for the newest german demands?

No, Ireland is not able to service its debt, therefore it will be defaulted on sooner or later. Given that, better that it be sooner rather than later. And the German policy proposals not only have nothing to do with the causes of the crisis (since Germany brought itself to ruin without any debt brake, as you say), they do nothing to resolve it.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

If Belgium and Italy were able to handle this level debt, since twenty years now, Ireland should be too. And how exactly the german debt brake in 2009 was bale to cause the Irish property bust and bank bankruptcy in 2008 I really don't get.

And Germany did get somewhat better through the crisis, because it did talk austerity, but did do stimulus.

And if "doing stimulus" is how Germany got out of the crisis, countries that haven't still gotten out of the crisis should continue to do stimulus.

Nobody is claiming that the German debt brake caused anything before it was enacted. The claim is that the debt brake is strongly deflationary, which will only make growth more sluggish and debt more unsustainable in the future, and is therefore incredibly harebrained.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

If Belgium and Italy were able to handle this level debt, there's no reason for the markets to cut off credit to anyone in the Eurozone now. Therefore the markets are insane and support at below market prices (as opposed to punitive rates) should be provided by those parts of the Eurozone still enjoying access to the credit markets, for the sake of Eurozone financial stability.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

In the case of Ireland, if you think Ireland is solvent, then it is in fact being subjected to an irrational run (withdrawal of short-term liquidity). The proper response in that case is for the Central Bank to provide liquidity at a reasonable non-market rate.

Instead of that the Central Bank tells the Irish government to call in the IMF.

Also, when the European Council tries to organise a collective fiscal facility, Germany screams "no bail-out clause!". When the ECB tries to buy sovereign bonds in the secondary market, the (German) Chief Economist and the Bundesbank chair wrongly claim that is forbidden by treaty (the treaty forbids buying at issue, which is bad enough already). The European Commission, Council, Ecofin and Central Bank are all such neoliberal market-worshippers that they actually take the market's assessment of Ireland's solvency at face value.

The Irish "rescue package" entails, under any plausible scenarios, including the ones put together by the Ecofin, an actual increase in the Irish debt burden, while at the same time demanding IMF-style "conditionalities". Some "rescue". No wonder the Irish government didn't want to be "rescued" and had to be forced.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

What's happening is that the Irish sovereign is being funded at 5.7 % when it should be funded at 0.0 %.

The fact that the ECB has finally woken up and started doing its job w.r.t. the private Irish banks (a decade late and a billion  short) does not excuse the fact that the ECB still isn't doing its job and printing money on demand for the Irish government.

Did I talk about individual irish citizens? There is a collective responsibility in a democracy. And the opposition during the years of the celtic tiger was very small. And because of this responsibility you can't do something like a foreigners only default.

The ECB isn't doing its job. If the ECB were doing its job, the Irish sovereign would be funded at 0.0 %, and we wouldn't be having this discussion.

Since the ECB is obviously unresponsive to the plight of Irish widows and orphans, the Irish state has a duty to protect Irish widows and orphans, and incentivise the ECB to start doing its fucking job and printing money on demand at 0.0 % to sovereigns needing stimulus. The easiest way to incentivise proper behaviour from the ECB is to cause pain to the ECB's political backers. Which means causing pain to the Frankfurt-based banks, and which means causing pain to Mrs Merkel's government.

You call it nationalist. I call it realpolitik. If you have some alternate suggestion for how to get the ECB to start providing unlimited stimulus money for the Irish economy at somewhere around the Frankfurt overnight rate, then I'm all ears. But so far you have presented no viable political strategy for how the Irish can continue to do stimulus without defaulting. And you have provided no political strategy - nevermind a credible one - for how the Irish state can obtain the necessary liquidity for continued stimulus without either leaving the -zone or threatening to default on foreigners first, in order to pressure those foreigners' governments to pressure the ECB.

Since you seem so keen on applying collective punishment to Ireland for electing Fianna Fail, you may think of it as applying collective punishment to any polity that doesn't pressure the ECB to start doing its fucking job and printing unlimited money for use in Keynesian stimulus.

I am not responsible for the policy position of the german government.

But the Irish pensioners and unemployed that you're happily throwing under the bus are responsible for the actions of their government?

You can't have it both ways. Either the Irish people don't deserve to suffer for electing evil morons to high office, or the German people don't deserve to get bailed out, because they elected evil morons to high office.

No, I don't believe in collective responsibility. I don't believe that it is legitimate to murder a Teabagger just because he voted for a torturing war criminal. And I don't believe that it is legitimate to murder an Irish widow's pension just because she voted for a crooked finance minister.

I do believe in defeating neoliberal policies whenever and wherever they sully humanity with their depravity. In this particular situation, defeating neoliberal policies means defeating Austerity. Defeating Austerity means threatening Mrs. Merkel and Messrs. Weber and Stark with a sufficiently big stick that they start printing money wholesale. And the only stick Ireland has that is big enough to make Messrs. Weber and Stark shit their pants and start printing money wholesale is the threat of making several major German financial institutions insolvent.

And if a German pension fund or two is collateral damage in that fight, well then there's nothing wrong with insolvent private pension funds that better public pensions won't solve.

If you have a better plan for how to fight back against "Hartz IV For Ireland," then I'm all ears.

Ironically, as the only Irish person actively involved in this discussion, I have defended IM's views as representative of many in Ireland - (Particularly conservatives who see the crisis has a heaven sent opportunity to cut back public expenditure dramatically).

However no one in Ireland has any sympathy with the banksters and regulators who are the most immediate causes of the crisis and whom many would wish to jail. What is more difficult to track down is those who benefited from the property boom - farmers who sold land etc.- partly because the beneficiaries are much more small scale and diffuse, partly because much of the money would have been invested in banks or property at home or abroad and so much was subsequently lost.

There is also a huge generational problem. Virtually all the beneficiaries (except a few banking whizzkids) are older, and most of those suffering are younger - the unemployed, emigrants, and those in negative equity because they bought their house (with a huge mortgage) since c. 2003.

I labour under the impression that you have built a narrative* where the entire debt of the Irish state is hold by "evil" foreign actors,

It pretty much is. More than two thirds of the Irish national debt is the direct result of the 2008 bailout of the Irish banks - a bailout whose overwhelming beneficiaries were foreign banks who failed to exercise due diligence in their lending during the bubble years.

Them's the facts. Not my fault you don't like them.

who for some unclear reason deserve to lose their money.

Well, if you lend money to a bank engaged in massive real estate speculation, then you need to lose your shirt. And if you have a business address on Canary Wharf, then you need to lose your shirt on general principles.

A bank or multinational company who resides - probably because of the low corporation tax - in Ireland is good and should get interest and capital on their bonds.

Uh, no. That's not what I said. Did you miss the part where I said that companies that are important to the productive economy should be paid, no matter where they reside? Here's a hint:

Then you make two lines on each of the two lists: One line between people you really, really want to save (ordinary bank depositors, industrial firms, etc.) and people you kinda sorta want to save if you can (private pension funds, non-toxic investment banks - if you have any of those left - etc.), and another line between the people you kinda sorta want to save and the evil people who should take a long walk off a short pier (bookies, toxic investment banks, everything with a business address on Canary Wharf).

Now, it is true that domestic Irish bondholders need to be taken care of before foreign bondholders. There are two reasons for this. The first reason is practical: Foreign bondholders can appeal to their own governments for bailouts if the Irish government cannot honour their bonds. The second reason is political: As long as the ECB refuses to print money on demand to support a Keynesian counter-cyclical fiscal policy for Ireland, the ECB's constituency should feel the pain before the Irish people.

A company or bank that has the misfortune not to have resettled in Ireland and still resides elsewhere should lose everything.

No, firms which serve a real economic function should not lose their money. Deutche Bank and Goldman, however, should.

So my mutual regional bank, who has perhaps bought some Irish bonds in the past, is evil and should lose everything.

Yes. Banks are very, very low on my list of businesses that need to be saved.

The equivalent Irish mutual bank, who has participated to its heart delight in the property bubble and regularly showered local Fianna Fail politicians with money is good and should take no losses at all.

Well, no. Again, I refer you to the part of my diary that you appear to find it difficult to understand:

Then you make two lines on each of the two lists: One line between people you really, really want to save (ordinary bank depositors, industrial firms, etc.) and people you kinda sorta want to save if you can (private pension funds, non-toxic investment banks - if you have any of those left - etc.), and another line between the people you kinda sorta want to save and the evil people who should take a long walk off a short pier (bookies, toxic investment banks, everything with a business address on Canary Wharf).

There also seems to be a value dissonance. I like my regional public bank and my regional/local saving bank. I think the are a valuable part of the German banking system and should be defended against the ravaging neoliberalism. As should be the equivalent parts of the banking system of other European countries. (And the state bank of North Dakota)

There also seems to be a value dissonance. I like my regional public bank and my regional/local saving bank. I think the are a valuable part of the German banking system and should be defended against the ravaging neoliberalism.

Well, yeah. If there's enough money to go around to keep banks from losing their shirts, then local banks and state-owned banks should be at the front of the queue.

But the fact is that if a bank becomes insolvent, there are established procedures to resolve that situation without any major loss for the real economy. The bank's management is decapitated, the assets sold off, and its shareholders and unsecured creditors get to take a haircut. But the economic function - credit analysis, information gathering, transaction clearing and money creation - will still be carried on during and after a bankruptcy.

When a manufacturing firm goes bankrupt, on the other hand, there is a significant risk that it is going to be disassembled and sold as scrap. Which destroys its economic function. And when a pension fund is insolvent, retirees get shafted. So all in all, if you have to shaft someone it's better for everyone, except the shareholders and management, that you shaft a bank than a manufacturing firm.

And the proportion of banks that are simply evil is arguably higher than the proportion of manufacturing firms that are simply evil.

And you do discriminate against other Europeans

Yes, because foreigners have another safety net.

In the best of all possible worlds, the EU would come together and make a list of firms and individuals who needed to be bailed out for the common good, and another list of firms and individuals who need to go whistle for their money. And then the EU would, collectively, bail out the people who needed to be bailed out.

In the world we actually have, the EU is not going to bail out the Irish retirees. And while the German government might bail out German retirees, it isn't going to bail out Irish retirees. So shafting the foreigners in preference to the Irish is the only way the Irish government can incentivise other governments to lend material support to a rescue operation that could ensure that nobody had to be shafted (except the hedge funds).

FT Deutschland picked up a story, according to which the Irish justice minister Dermot Ahern blamed the ECB for pushing in Ireland into a decision to apply for a bailout, without having the opportunity to make a proper evaluation of the process. (The way he phrased it suggests that he thought the action not merely politically unacceptable, but also legally doubtful.)

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

Is that an Ireland only exception or do think all democratic states are not democratic in true sense, so their citizens are just subjects, not do be made responsible for the mad antics of their overlords?

There is a misunderstanding of the structure and nature of citizen responsibility for their government in the western democracies. Let me illustrate:

Osama:

The US government is guilty of thousands of murders of Muslims around the world, in actions of imperialist intent [True]

The US government is elected by the people of the US, in free and democratic (usually) elections [True]... THEREFORE

I can inflict personal punishment on individual US citizens because of they share a collective responsibility for their government. So it's OK to blow up the twin towers because that's the only way I can punish (random) Americans for their complicity in their governments machinations, because of which all of them have enjoyed perks like cheap oil forever.

Now the premises of the argument are true, but the conclusion does not follow. Citizen responsibility is a different sort of responsibility than criminal responsibility and can not be addressed by an international equivalent of a penal system. Before you say that this is physical punishment, I assure you that the results of ECB/IMF policy in the EU and Ireland will be very physical for many people, most of which were the people at the bottom of the ladder, the least responsible for whatever their banker overlords had indeed decided. In fact should Ireland not default, those least affected by the depression that will ensue will be the buggers at the top who were most implicated in and most responsible for this whole debacle.

Good question. I agree that collective punishment against citizens of a democratic state is justified. But not in every case. Democracy is after all based on individual rights that majority vote cannot nullify. In this case we are talking after all very much about housing, and that is, or at least should be, in the realm of individual rights. (And of course economic collective punishment in practise never punishes collectively)

The negotiations with the ECB were carried out b the Central Bank Governor and senior civil servants in the Dept. of Finance and the Cabinet was "bounced" into accepting a fait accomplit very late in the process. Yes they did ultimate accept the deal but both the manner and the content of the decision was unconscionable and is a primary reason why we now have a general election in which the Governing parties will be shafted.

My diary is primarily aimed at ensuring the next Government doesn't act quite as stupidly.

Once the creation of NAMA was on the horizon the bonds issued by and loans issued to the affected banks most likely became highly toxic. Most are probably still held by the original holders or have been sold at a substantial, (but inadequate), haircut. The only other possibility is that they have been bought by the Irish government. About that I have no information.

The banksters got to keep their profits from the time before their bubble burst and, once again, the losses are socialized. Enough is enough.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

You seem to be overlooking the point that we're discussing sovereign default. Default by individual Irish banks is secondary.

You're also overlooking the point that hardly anyone believes that the current repayment regime is in any way practical or realistic. The ECB/IMF suicide agreement is based on dogma and rhetoric, not practical economic reality.

It's not Ireland that needs to deal with reality - it's the ECB and the IMF.

Given that default is a predictable outcome of the current agreement - after the real economy crashes into a depression - the choice is between defaulting now, extracting the banking parasite, and rebuilding a working real economy, or defaulting later when all that's left of the real economy is a glassy smoking crater, and the best talent has moved abroad.

Do you really think a hedge fund - or any private lender woulds give a credit to the irish banks at 1.75%?

The current negotiated rate for the bailout loan is 5.8%, which looks pretty damn punitive to me - and certainly if you want a country to get out of a depression, loan sharking isn't the most effective way to do it.

Loan sharks? Do you assume the other european countries can borrow at 0%? And the ECB has given the banks - and that means nowadays the irish banks - a lot of money at 1.75%. And you think 1.75% is to high and so the irish banks have a right to default on their debts to the ECB.

That is of course nutty. Austerity now is a mad proposal. But I think a lot of the irish deficit is cyclical and would go away on a upturn. The remaining deficit can be closed. The irish are rather undertaxed - especially income tax and yes corporate tax.

So why should be impossible to balance the budget in five years or so?

If the ECB and IMF were not demanding Austerity Now!, then we wouldn't be having this discussion, because Ireland would be perfectly able to repay the debt in due time. But Austerity Now! is what is being demanded, and what will cause Ireland to default. Well, better to default now, and let the people who are demanding Austerity Now! eat the losses, than first crash the Irish economy and then default, leaving the Irish public in a smoking crater and the people who are demanding Austerity Now! still eating very nearly the same losses.

Japan "managed" by adopting a zero interest rate policy. This had the effect of making it cheap to hide the insolvency of its major banks for a decade -- at the cost of a "lost decade", (or two), of economic stagnation from which the Japanese economy has yet to truly emerge. It also helped GE and others who profited immensely from the "Yen carry trade". Richard Koo has written extensively about this "lost decade" and made an excellent presentation at George Soros' forum this last spring.

A common consequence of prolonged cheap money regimes is the creation of asset bubbles. In the US Greenspan's prolonged cheap money policy combined with "see no evil" regulatory forbearance helped fuel the bubble that broke in 2008. That bubble which began in 1999 served to facilitate the extraction of wealth from the US middle class by the US banking elites through home equity loans that made possible the continued purchase of cheap Chinese goods that also profited those same elites -- at the expense of the US worker whose real income has declined.

The end result of such cycles is economic devastation for the many and, absent governmental intervention as with FDR, consolidation of the wealth and power of the financial elites. As a collective institution that financial elite is incapable of concern for the health of the body politic or the average citizen and, in a failed attempt to continue to extract expected returns, imposes massive gratuitous damage on the society as a whole. This is what is looming for Ireland.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

The "irish" banks did get in trouble and had to bewere rescued by crooked Fianna Fail politicians because of the housing bust: Mortgages, breakdown of the construction sector.

[...]

Now in 2008 there was a high exposure of international banks to Ireland.

[...]

Problematic was and is the exposure to the "Irish" banks. But of course all banks have cut back their exposure now for over two years.

The question is to what extent they have unwound it. I don't think they have. And to the extent that they have, they have foisted it on their own sovereigns or the ECB. I have no problem defaulting on a foreign sovereign who decided to relieve its banks of garbage assets. If you want to bail out your banks, you should get to pay for it yourself. I also have no problem with defaulting on the ECB - if the ECB were acting like a proper central bank, we wouldn't be having this discussion in the first place, because then the ECB would simply fix prices in all -zone sovereign bonds.

The losses of the "Irish banks" did first eat up the capital, so owners did get wiped out. Then the Irish State had totook leave of its senses and decided to pay. Creditors on the other hand, depositors, bondholders, other creditors escaped scot-free.

[...]

Now my theory is that there are not many private bond-holders left. They have used the last two years to get rid of their credits to Irish banks. The obligations of the Irish banks have shifted to the Irish state and the ECB.

Well, yes. That's why we're talking about a sovereign default, not a bank default. There has been a swap of Irish bank debts for sovereign debt, but the ultimate creditors remain roughly the same people. So defaulting on the government debt will force the people who used to be creditors of Irish banks to take a haircut. Obviously it won't hit every former creditor, and it will hit some financial institutions who weren't creditors of Irish banks. But that's how things go in financial meltdowns. Beats flagellating the Irish economy.

The Irish state already took this hit a couple of years ago, when it took leave of its senses and issued a blanket guarantee of all Irish private bank debt. This is about the Irish state saying "yeah, about that guarantee? Go suck on it."

b) The ECB.

I am not sure you are in a strong position with the threat: I will just default and hit myself and my own central bank.

A rather important subplot in this story is that the ECB is behaving more like a hedge fund than like Ireland's central bank. Even if it were true that most of the debt would hit the ECB and EFSF, that wouldn't be that bad an outcome, all things considered.

Who will suck on it? The irish depositors? Or the capital owners - that would be the government and the pension fund. Leaves the ECB. A hegde fund? the ECB has given 100 Billion Euro or so to the irish banks. at 1.00%. Have you ever heard of a hedge fund acting like this?

The plan is not two years too late. Two years ago (on October 1, 2008, to be precise) the plan would have been different, a straightforward regulatory intervention of insolvent banks, putting the banks in receivership, dismissing the management, and splitting the banks' good assets and important liabilities (i.e., deposits) into a going concern and the bad assets (plus any net equity of the good bank) and unimportant liabilities into an entity with the sole purpose of carrying out a bankruptcy liquidation.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

Well, in that case there is no need to accept the austerity package is there?

I do not see this so much about the debt itself, but about the belief that Ireland is out of money ("We are in dire straits. We cannot borrow money in the markets." to quote the initial letter) and thus has to accept ECB's program of austerity in order to borrow money. If the belief in that the debt needs to be repayed (it does not) is undermined, the need to accept the austerity package goes away.

Default is about re-establishing that Ireland, not ECB or the money-markets, decides social policy in Ireland. If the irish voters and the irish politicians can get this and still want to keep the loan/debt solution, fine by me. But as it stands, the common wisdom appears to be debt-> loan from ECB-> must accept austerity. So debt is one of the points to attack, another is the way ECB has taken it upon itself to run the social policy of memberstates.

Then again, I have nothing against default per se either. The lenders after all gets payed for interest for taking that risk. And I see nothing wrong in deciding to protect those that Ireland deems more in need of protecting while performing such a default.

Politics is about choices, shock doctrine is all about denying any choice except dramatic cuts for those worse off and privatising assets to those best off. And then rushing it through. What we do here is largely to constantly formulating choices in the hope that it gets read and used.

Do you mean that they should accept austerity as the proper consequences for neoliberalism?

And you buy in the nationalistic irish narrative: Ireland as perpetual victim, never responsible for anything.

Ireland is a state, not a person. Since my argument when it comes to irish debt is very similar to my arguments about greek and icealandic debt, I believe that nationalistic irish narrative might not be the common demoninator.

To me you appear to have an either/or approach to responsibility, where ECB can not be responsible for anything as all is the fault of Ireland. Could you please tell me if it is the people of Ireland, the politicians of Ireland or some other person/group that you hold responsible?

The Irish politicians were responsible for the regulation of the Irish banks. There was no european banking regulation. Irish banking regulation failed.

The Irish people supported not only FF, but also the their coalition partner and the main opposition party FG. All of them - and the Labour party at least 90% of it - supported the failed Irish economic model. All the other major players of Irish society: banks, business, the real estate sector, local government, the unions, the press played happily along.

Perhaps the roman catholic church was innocent, being otherwise occupied. And perhaps the national association of the travelers opposed the housing boom.

But as far as a society can be made responsible, the Irish society was collectively responsible.

The last big madness was the famous universal guarantee, without consultation of any european partners.

The ECB on the other hand is not helpful now, but has supported the Irish banks two years now. Is it really so absurd to say, this can't go on we need a permanent solution?

Now this could have happened in other countries and in similar ways it did. Everybody likes a real estate boom and low taxes, and everybody likes to blame shadowy foreigners.

But we shouldn't encourage them. Not in Ireland and not in Iceland or Greece.

_ Is it really so absurd to say, this can't go on we need a permanent solution?_

Yeah, the permanent solution is for the new Dail to renege on the blanket guarantee of all bank liabilities adopted by the previous government in October 2008. This will burn some creditors of the Irish banks. It will be a sovereign default since presumably the guarantee by now has legal standing.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

Everyone seems to think the Irish government guaranteed all deposits. That's not what they did.

They guaranteed the entire balance sheet of the banks, from deposits to senior to junior debt to derivatives to whatever.

So bondholders had a government guarantee they didn't have before.

I'm not saying repeal the deposit guarantee. After all, depositors have always been and will always remain the most senior creditors of any regulated bank. No, I'm saying repeal the blanket guarantee of the entire unsecured debt of the Irish banks.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

Distinguishing between foreign and domestic creditors does make sense: Foreign creditors have a second safety net in their own government; Irish creditors have no such thing. And as a practical matter, Frankfurt and Bruxelles are going to be a lot more sensitive to British, German and French creditors than to domestic Irish creditors.

If the powers that be do not want German taxpayers to bail out Greek sovereign bonds, then there is no reason for Irish taxpayers to bail out German pension funds.

I see this "blame the people" narrative all over Europe. Who who was the primary beneficiary of this neoliberal binge? How much were workers exploited in Ireland? A lot (see below)
[source].

If working people were not the main beneficiaries why are they expected to be the sole suckers that have to foot the bill and not the people they've been making money for?

And tell me (I really don't know): What percentage of national income went to hospitals, to education? Wasn't Ireland among the most unequal countries in the EU? How about the people at the top who made real money out of the bubble?

We had the same discussion with the Icelanders, and look where they are now. And we're having some variety of this discussion in Greece. There is no excuse to pretty much annul democracy and throw a country to the markets, witch pretty much is synonymous to shielding the elites form real damage. And this is not just about Ireland (although Ireland is an especially odious case given that the Irish government unabashedly burdened their own voters with the debts of their banker friends, at the ECB's request): it is about the whole EU periphery (and indeed even the working class EU-core) which, after Merkel is done with her "competitiveness" plans, will become German vassal states with quasi-feudal elites running them. So I personally as a citizen of Greece have a lot of sympathy for Ireland, and will root for them in the rather unlikely case that they manage to knock down this whole theater of vampire bankers feeding off a disaster they invented, by any means necessary. Heck raise a new independence army. I'll come and join as a volunteer, if we don't manage to kick off our own bag of mayhem down here.

Note that the elites where I am are pretty much disparaging the Greek people for not following exactly the sort of road the Irish have "chosen", they then fail to explain how that road led to the exact same consequences when all was said and done was that much better.

The concept that people are "responsible" for policies that are presented to them by all the "important people" (and I won't even go into the international claptrap concerning the Irish model, and the Celtic Tiger) as inescapable and without alternative, assumes too much of democracy as is currently practiced. Especially if the end result of the bitter medicine they will be forced to swallow is even less democracy, fewer options and a vastly more skewed income distribution.

Having said all that, I think IM is helping a lot in honing the arguments and preempting criticism. So I think that this is becoming a rather useful exchange.

If it's going to a vote: I will sign whatever is agreed upon. As Egypt shows, many humble efforts can have unpredictable results - and what do we have to lose anyway.

One general question to Jake, Migeru and all: what would a similar proposal for Greece look like? Is there anything that Greeks can do to avoid this neolib hell we're experiencing? Apart from mass protests civil unrest and general havoc that is...

what would a similar proposal for Greece look like? Is there anything that Greeks can do to avoid this neolib hell we're experiencing? Apart from mass protests civil unrest and general havoc that is...

Ireland is unique among the PIGS in that it has a structural balance of payments surplus, and that its goverment debt is unsustainable mostly because of the ill-conceived blanket guarantee of their failing bloated banks. They would have had a large deficit in 2009 in any case due to the recession, but without several multiples of GDP in zombie banks liabilities the Irish treasury and central bank would likely be jointly solvent.

I think Greece has only the nuclear option left: sovereign default and issuing scrip. But maybe that's a failure of my imagination.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

Yes and the 1 trillion Euro question is: in the medium and in the long run, is the nuclear option better or worse for exactly the people you want to protect - compared to following the road of austerity and "reform" (which will lead to a default managed by the debtors at some point anyway)? Does just sitting and hoping for an electoral change of guard in Germany and France in the next couple of years even make sense?
Or is cutting general income levels in half but preserving their public nature, taxing property and assets and prosecuting tax dodgers among other things, a better option on a 5 or 10 year horizon?

I actually think it is. Sovereign default doesn't imply an exit from the Euro, and if the money markets close down to Greece as a result and the European System of Central Banks temporarily stops clearing payments with the Greek Central Bank they pretty much force you to issue scrip to keep functioning, institute capital controls, or other emergency measures suspending parts of the EU rules. You can always pay any fines imposed by the European Court of Justice a decade later, when the economy has recovered.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

Ah, right blame the ECB. Because the irish elites who created this low tax no regulation paradise are not blame at all. Instead they got you rooting for them.

And Iceland: I still think the glorious icelandish plan to split their banks and give the new part the assets and the old the debts was fraudulent. Especially because the domestic deposits were in the new bank and the foreign deposits in the old. But in the long run they will pay anyway. They already have to some countries.

No I'm not. Burn them. Tax them to oblivion. But the issue is not whether the elites or the people are to shoulder the blame. Under current arrangements workers pay for the debt and the elites (Irish, German etc) are free to make even more money and reflate some new bubble or whatever the magic fairy of unfettered markets tells them to do. How is that fair? At this point getting rid of the austerity seems a prerequisite for even the most basic popular input in the matter. And this is not solely an Irish matter. Why should we care to protect German (or Irish, or whatever) bankers?

Ah, right blame the ECB. Because the irish elites who created this low tax no regulation paradise are not blame at all. Instead they got you rooting for them.

Did you miss the part where I argued that the Irish oligarchs need to lose their shirts as well?

Here's a hint:

Then you make two lines on each of the two lists: One line between people you really, really want to save (ordinary bank depositors, industrial firms, etc.) and people you kinda sorta want to save if you can (private pension funds, non-toxic investment banks - if you have any of those left - etc.), and another line between the people you kinda sorta want to save and the evil people who should take a long walk off a short pier (bookies, toxic investment banks, everything with a business address on Canary Wharf).

All the people on the 'evil' part of the list should ultimately end up losing their shirts completely.

And Iceland: I still think the glorious icelandish plan to split their banks and give the new part the assets and the old the debts was fraudulent.

That is a perfectly ordinary bank intervention. There is nothing fraudulent about that, and indeed it is how a bank is put through bankruptcy every month somewhere in the OECD.

But in the long run they will pay anyway.

No. Really, they won't have to pay anybody who isn't going to send a gunboat to Reykjavik.

They may want to pay some of their creditors, because they view their claims as legitimate, or because they want to avoid the political fallout from not paying them. But sovereign states never have to pay their creditors.

Because the irish elites who created this low tax no regulation paradise are not blame at all.

They're already fucked. Most of them are down to whatever small numbers of millions they managed to squirrel away in the wife's name. They're not exactly homeless and starving, but they're down to a small percentage of their previous "wealth". The ones that aren't are the ones who were rich before the boom. Some of them are still managing to appear rich, but they're standing in the air at the top of a canyon they just haven't noticed.

So, no cafeteria neo-liberalism allowed? If Ireland takes one bite of that apple they have to eat the whole apple, seeds and all?

Ireland opted to follow that part of the neo-lib agenda that suited it best. Beggar thy neighbor tax policies are de rigueur between the states in the USA and Ireland correctly saw this as a likely option to attract industries. If this was unacceptable it should have been required to be undone before the EMU proceeded to completion.

The real estate bubble in Ireland flowed from neo-lib ideology and practice and its replication in Ireland was cheered as an example of the benefits of this ideology and practice -- until it blew up. In these circumstances it seems entirely appropriate that the Irish state should seek to protect those social services that will allow counter-cyclical spending to alleviate suffering and prevent a debt-deflation economic death spiral.

At the time the EMU process was started the EU and Germany was characterized by rather generous social programs. The neo-liberal agenda has been largely to dismantle this system in the name of competitiveness but with the result of reducing the share of produced wealth going to workers and retirees as wages, benefits and social services.

The terms of the EMU/IMF settlement smack of vindictive opportunism by Germany and the ECB to punish Ireland for clinging to the low tax policy that has provided it with industry and to force Ireland to drastically cut social spending regardless of the human cost. It would be one thing if that policy might work. But that seems to have a vanishingly low probability of happening.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

I have markedly less sympathy for the Irish "tax competition" strategy than you appear to have. But it is rather rich to hear from a German that the Irish are collectively responsible for their irresponsible macroeconomic policy... when Germany has practised the even more irresponsible macroeconomic policy of wage competition.

A country that passed Hartz IV really has no business whatsoever lecturing others on macroeconomic policy.

I think Jake's "you" referred to my comment, and I should clarify that I despise tax arbitrage in all of its forms. I was not so much defending Ireland's approach to attracting industry as pointing out that there is no reason they have to adopt more of the neo-lib agenda just because they adopted this part. I would favor a gradual increase in corporate taxes on multi-nationals doing business in Ireland, up to just below the point where the advantage is eliminated.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

I am not saying they have to adopt even more of the neo-liberal agenda. A roll-back is necessary. They could balance their budget by raising taxes: corporate, income and perhaps on real estate, to prevent a new bubble.

Increasing income tax rates on top earners would likely be a good move. I don't know the specifics of the Irish tax structure, but I doubt that it taxes the wealthy and their estates particularly onerously.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

They have increased taxes at the top a bit, but, anecdotally, a lot of the top earners are in pretty precarious positions now anyway - their incomes are down substantially (my household is down a third, for example) if they're employed or professionals and they're probably carrying investment loans which are becoming pretty onerous (not so much my household, we have a low risk tolerance).

In the short term squeezing too much will kill the golden goose - and increase the stress on the banking system too. Isn't life grand?

They could balance their budget by raising taxes: corporate, income and perhaps on real estate, to prevent a new bubble.

In the first place, that is not what is being pushed for under the banner of AusterityTM. If you believe that forcing Ireland to honour its debts will result in rollbacks of their neoliberal policies, then you are living in a fantasy world. Pressuring Ireland to honour their debts will provide an excuse for neoliberals - in Berlin, in Bruxelles and in Dublin - to push for wage suppression, dismantling of the pension system, destruction of unemployment protection and collective bargaining and all the other bullshit "reforms" that always get pushed whenever there is a "debt crisis" and "budgets need to be balanced."

Arguing that Ireland should pay its debts by raising taxes on the rich is, in terms of realpolitik, as delusional as asking that the Irish turn down Lisbon in order to permit a grassroots drafting process for the next treaty. It's not gonna happen, and by pushing for it you are aiding and abetting the neoliberals, for whom insisting on debt repayment is a precondition for engaging in "structural adjustment programmes."

In the second place, no Ireland cannot balance their budget by taxing the rich, because Ireland is in the middle of a serious industrial depression, in case you didn't notice. Which means that they can't balance their budget, full stop. They can't balance their budget by taxing the rich. They can't balance their budget by taxing the poor. They can't balance their budget by cutting benefits. They can't balance their budget by taxing corporations. Because they can't balance their budget. Demanding that they balance their budget is buying into the neoliberal idea that governments need to run balanced budgets. They don't. In fact, they shouldn't. Not in recessions, and not cycle-averaged.

I don' buy the theory that Ireland can't rise taxes. That is neoliberal clap-trap. FDR did rise income taxes during the great depression. And what ever the situation in Ireland is, it is not a industrial depression. Manufacturing is least troubled sector in Ireland.

I don't assume Ireland will always be depressed. Budgets can and should be balanced over the cycle. Your novel theory: never balance the budget and default regularly can not work.

Your plan is raising taxes to pay off foreign debts in the depths of a recession? Raising taxes - my taxes, I'll point out - to spend on stimulus I might buy. To pay off private debts that should never have been made public? Not so much.

You can't balance the sovereign budget in the middle of a depression. If you try, the only result will be crashing your GDP to a level where the tax base erodes sufficiently to restore the sovereign deficit required for the private sector to deleverage.

Obviously, you can raise taxes on the rich, even during a depression. It's actually not a bad time to do it, provided that you have a big enough soapbox to shock doctrine it through. But it won't balance your budget. It will only enable you to make sure that the deficit goes towards building useful infrastructure rather than lining the pockets of your oligarchs. For the purpose of real economic planning, that's a great thing. For the purpose of paying German bondholders, whose bonds mature in less than three years, it doesn't really matter one way or the other.

And this is all Macro 202 (actually, if you look closely at the accounting identities, it's Macro 101 - but most textbooks not to emphasise it). Even the Chica(r)go cultists get this, although they like to pretend otherwise.

I don't assume that Ireland will in three or five or ten years still in the middle of a depression

I wouldn't be surprised if it was, given that we're meant to be running massive austerity budgets for all of that period.

GNP is going to shrink again this year and probably next year - any recovery will be drowned at birth by further austerity.

Sure, tax rates here are too low, sort of. Effective tax rates may be quite high for the poor because of how VAT and charges for government services are structured. I've been calling for increases in Irish taxes for years.

But in the next few years, if not in the next few months Ireland can arrange its public budget in a way that the interest can be paid.

No. It can't.

Why is this so hard to grasp? It's Keynes For Kindergardeners: You cannot run a budget surplus during a serious depression. Not enough surplus to pay interest, not enough surplus to amortise, no surplus at all. Full stop.

So Ireland's bonds will have to be carried for the next five to ten years (more like fifteen if Germany insists on practising Austerity) without the bondholders seeing a single eurocent. Now, that would not in and of itself be a problem, if the ECB were doing its fucking job and printing money on demand. But the ECB is labouring under the delusion that governments should be paying seigniorage to the international money markets.

Now regarding the middle of a depression: I don't assume that Ireland will in three or five or ten years still in the middle of a depression. And then taxes can be rised. And debts be serviced.

If the ECB had been doing its job and printing unlimited amounts of money for Ireland, then your proposal would have been something worth talking about. It would still have been odious, because there is no good reason the Irish taxpayer should bail out the Irish banks, so the part of the debt that corresponds to the bailout should be defaulted upon, at the very least. But it would have been within the realm of the possible.

With the ECB practising Austrian economics, however, your plan of "carry now, pay later" is delusional. It can't happen until Weber, Trichet and Stark are fired and replaced with people who understand the real opportunities and constraints that a fiat currency represents. So unless you have a proposal for how to get Messrs. Trichet, Weber and Stark fired and replaced with Keynesian economists that does not involve defaulting on everything with a business address in Frankfurt, I don't see how your plan is anything but a pipe dream.

But on the ECB: There are 16 member states of the ECB. If they wanted, they could send 16 Keynesian economist to Frankfurt. They don't do this. Instead they blame the ECB, a beast of their own creation.

But when they default, that will cease to be Ireland's problem, and the Germans who get burned can take it up with Messrs. Stark and Weber, who bear the lion's share of the blame for the ECB's stupidity.

But on the ECB: There are 16 member states of the ECB. If they wanted, they could send 16 Keynesian economist to Frankfurt. They don't do this. Instead they blame the ECB, a beast of their own creation.

Oh, but that is the whole point of this strategy: Pressure the -zone countries into sending loose-money governors to the ECB.

That said, it really is undignified seeing you try to fob the blame off on someone else - anybody else - other than the last twenty years of German policymakers. The inflation mandate was a German idea - in fact, a German condition for joining the  in the first place. So was the General Stupidity Pact, by the way. And there is no doubt that German policy positions wield a disproportionate influence in the ECB. For that, you only have to look at its actual interest rate policy over the ten years of its existence as a functioning central bank: They have consistently favoured German macroeconomic policy at the expense of the interests of peripheral countries.

Weber's ouster is good news. Now we just need to get rid of Stark, and we'll have a shot at getting somebody sane in office.

But it doesn't change the fact that the ECB has been consistently favouring the surplus countries - of which Germany is the most prominent and powerful - and has for far too long been pandering to German inflation neuroses.

Incidentally, you should be happy about this outcome. Weber was the most significant obstacle to Ireland's debt being repaid in full, due to his insane insistence that the ECB shouldn't carry it at below market rates until the crisis was over.

But the ECB is labouring under the delusion that governments should be paying seigniorage to the international money markets.

But that is much too generous an assessment of the mind set of the ECB. Rather than laboring under delusions, they are much more likely acutely aware of the ire they would recieve, the hit their financial futures would take, and the general opprobrium they would endure were they to deny their private sector patrons the seigniorage to which they feel entitled. They are probably at least aware of the arguments that they can create money without seigniorage, but also aware that this is like a third rail for central bankers in a neoliberal economic environment.

It would be very interesting for Trichet to be asked by, say an MEP, why he has not considered issuing money without siegniorage to help the recovery of banks and central banks that threaten the stability of the entire system. The answer, if truthfully given, would be that so doing would undo too much of the narrative that underlies existing policy and would harm the beneficiaries of the neoliberal policies -- the very wealthy.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

And whatever exactly helped Germany to master this crisis - neoliberalism it was not.

On this I believe we can agree. One thing that has helped Germany for at least the last decade has been that they have been able to set important aspects of macro policy to suit their perceived needs regardless of the consequences to other countries. The peripheral nations have been out of phase with Germany in their interest rate needs and are receiving ever decreasing sympathy for their plight.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."